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Why Inbound Demand Fueled Tosei Corporation’s Q3 2025 Financial Performance · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  Welcome to the Deep Dive. Today, we've got a custom mission on our hands.
• 0:11
  We're going to be slicing into the consolidated financial results for Tose Corporation.
• 0:16
  That's right. We're looking at the nine months ended August 31st, 2025.
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  So they're Q3 for the fiscal year. Exactly. And this isn't just,
• 0:25
  you know, another quarterly report. It feels like a real window into how a major
• 0:29
  Japanese real estate player is, well, navigating a pretty complex market right now.
• 0:34
  It really is. You've got soaring demand on one side, but then these crippling
• 0:37
  rising costs on the other.
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  And just to be clear for everyone listening, we're working strictly from the
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  IFRS documentation Tose provided. Absolutely.
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  The goal here is to quickly unpack their core financial performance.
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  We want to understand the strategies, the actual drivers behind these numbers.
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  And figure out if their outlook holds water. Is this success just the market
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  lifting them, or is it smart strategy?
• 1:00
  Precisely. We need to see what's really going on under the hood.
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  Okay, let's jump right in with the headline numbers then. Because honestly,
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  while we might have expected strength, the level of growth across the board
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  is, well, it's pretty notable.
• 1:14
  It really is. For those nine months, Tose posted strong double-digit increases
• 1:18
  pretty much everywhere compared to last year.
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  So revenue hit, well, $83,961 million. that's up 20.9% year-on-year, a big jump.
• 1:28
  Yeah, that 20.9% revenue spike is excellent. It definitely signals they're capitalizing
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  on that market demand we talked about. It gets better, doesn't it? It does.
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  Structurally, the profitability news is arguably even better.
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  Operating profit climbed to $20,798 million. That's up 21.9% year-on-year.
• 1:46
  Okay, so operating profit growing slightly faster than revenue. Exactly.
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  And then profit attributable to owners
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  of the parent, the bottom line for shareholders that rose even faster.
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  It reached $14,045 million, which is a full 25.0% increase.
• 2:00
  Right. So the key thing to notice here is that profit growth is actually outpacing revenue growth.
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  If the top line's expanding by, say, 21%, but the profit-hitting shareholders is up 25%.
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  That suggests something good is happening with efficiency, right?
• 2:12
  Absolutely. It points towards operating leverage, or maybe they successfully
• 2:16
  shifted their business mix towards higher margin stuff, or likely a bit of both.
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  We'll definitely need to dig into that segment mix later.
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  But for an investor looking at this, the immediate impact is clear in the earnings per share, the EPS.
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  Yeah, basic EPS really shot up. It went from 231.96 in the prior period to 289.75
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  this year. That's a substantial lift. It is.
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  And that kind of jump is a clear signal, you know, that the underlying business
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  model is squeezing more value out of the current revenue cycle.
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  OK, so we've seen the what's strong growth, improving profitability. Now let's get to the why.
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  Kosei is operating with this massive macro tailwind behind it.
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  What exactly are the sources telling us about the Japanese real estate market engine right now?
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  Well, the documents really emphasize this robust investment demand.
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  It's coming from both domestic and importantly, overseas investors.
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  And it just it keeps going. The money flowing in is serious.
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  Phenomenal. Just look at the first
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  half of 2025. Domestic real estate investments were up 22% year on year.
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  That hit $3,193.2 billion.
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  Wow. And the forecast for the full year. It suggests a record year.
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  Total real estate investment in Japan for 2025 is expected to be around $6 trillion.
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  That's an incredibly strong foundation for Tose, or really any company doing
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  large-scale deals there. And drilling down into their specific playground,
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  the Tokyo metro area, things look pretty good, too.
• 3:39
  Yeah. Several advantages there, according to the docs. The office leasing market, very favorable.
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  Vacancy rates are tight, like 3.2 percent. And asking rents are up 4.4 percent. That's solid.
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  And residential rents are soaring, too. Average asking rent up 6.2 percent.
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  Plus, you can't ignore the hotel sector. It's recovering really strongly,
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  mainly thanks to all the inbound visitors.
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  Tose actually mentioned it's exceeding their internal plans.
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  OK, so a strong market overall.
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  But, and this is a big but, the documents also highlight this major challenge. Costs.
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  High costs. Exactly. That's the central conflict here. TOSE can't just escape
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  global materials inflation.
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  The report specifically calls out steel-reinforced concrete structure costs
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  obviously crucial for big developments. And how bad was that?
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  Up 15.3 percent year-on-year through July 2025. That's a huge spike. Ouch.
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  That 15.3%, that's the kind of thing that can really squeeze margins if you're
• 4:34
  not careful. It absolutely forces companies to be intensely strategic.
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  And we also see some, let's say, softening in certain segments that might signal
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  future risks. Like what?
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  Well, the Tokyo metro logistics market, for example, the vacancy rate there
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  is climbing up to 9.6 percent and asking rent is actually falling by 4.1 percent.
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  OK, so not everything is booming.
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  You've got this backdrop of record demand, but also specific weaknesses like
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  logistics and these crippling construction costs.
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  That's the tightrope Tose had to walk. Precisely. And that brings us to their execution.
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  Right. Given that really tough cost environment, especially the concrete,
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  how did they actually manage their development pipeline? What was the strategy?
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  Well, the segment performance breakdown really shows some remarkable agility.
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  Let's start with the development business. That was the biggest growth leader
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  in terms of sheer volume.
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  Revenue there was up a massive 46.0%. Profit was up 19.0%. So profit didn't
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  quite keep pace with revenue growth in this specific segment,
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  maybe reflecting those costs. What were they selling?
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  A fair bit. 12 whole buildings, including a key logistics facility,
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  Tees Logisano, despite that market softening we mentioned, and also 32 detached houses.
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  Development is typically higher risk, you know, ground up construction,
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  but clearly the sales prices were strong enough.
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  And then there's their other big sales arm, the revitalization business.
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  This seems crucial for understanding how they dealt with costs. Exactly right.
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  Revitalization is all about buying existing properties, often older ones,
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  fixing them up and selling them on. Think renovation and recycling.
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  Less exposure to those sky-high new construction material costs.
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  Precisely. Lower capital expenditure risk compared to giant ground-up projects.
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  And this segment performed strongly too. Revenue up 13.2% and profit up 13.1%.
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  Pretty much in lockstep.
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  And what drove that? Sales of 32 renovated properties and, interestingly,
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  93 pre-owned condominiums.
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  They noted these were often high-priced units in prime Tokyo spots.
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  Okay, so here's the strategic insight then.
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  Faced with that, frankly, scary 15.3% jump in concrete costs.
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  Tose consciously leaned more into revitalization.
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  Yes, they increased the ratio of that business. They shifted focus towards projects
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  less exposed to new material inflation.
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  And even within the development segment itself. They pivoted there, too.
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  The documents mention a focus on wooden structure rental apartments. Why?
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  Because wood costs only saw a much more moderate 6.0% increase. Ah, smart.
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  Targeted risk mitigation in action. Definitely.
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  And that focus on strategic mix, on where the profit comes from,
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  is super evident in the real profit superstar segment.
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  And interestingly, it wasn't tied to physically selling buildings at all.
• 7:15
  Ah, you must be talking about the funding consulting business. You got it.
• 7:18
  This segment's growth really shows how they're successfully building up those
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  stable, fee-generating income streams.
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  Okay, lay up the numbers for us. Revenue was up a healthy 30.5%. Yeah. But get this.
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  Segment profit soared by 42.8%. Wow, 42.8% profit growth. What fueled that?
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  It was mainly driven by a big jump in assets under management AUM.
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  That's now sitting at $2.6425 trillion.
• 7:43
  Brilliant. With a T. With a T. And the key driver mentioned was landing a major
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  contract in Q2 to manage one of Japan's largest sharehouse portfolios.
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  That's pure recurring fee income really boosting the bottom line.
• 7:56
  Nice. Okay, and rounding out the picture, the service site also saw a bounce
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  back in the hotel business, right? Absolutely.
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  That segment is clearly thriving on the back of increased inbound tourism.
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  Revenue up 15.1 percent and profit up an impressive 31.7 percent.
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  As we mentioned, they said it even beat their own internal forecasts.
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  So it sounds like almost uniform success across the board. Almost.
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  Almost. There is one outlier, one area that didn't quite shine as brightly,
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  the property management business.
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  What happened there? Well, revenue was up, but only marginally, just 2.9 percent.
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  But the segment profit actually declined by 7.1 percent. Hmm.
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  So costs went up faster than revenue and property management.
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  It suggests some serious margin pressure in just the day-to-day running of properties,
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  maybe rising staff costs, maybe more competition in the management services space.
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  It's really the one clear spot of, let's say, internal financial weakness in this report.
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  Okay, let's shift gears a bit now and look at the balance sheet.
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  These strong operational results should theoretically translate into a stronger
• 8:55
  financial structure overall.
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  What stands out on the asset and equity side? Well, total assets definitely
• 9:00
  grew up by over $18 billion to reach almost $295 billion.
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  $294,894 million to be exact. That's a lot of assets.
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  It is. But more importantly, I think, is the quality of their financial structure,
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  how it's funded, the equity attributable to the owners of the parent company's
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  shareholders, that grew.
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  And that push up a key ratio. Yes, the crucial ratio of equity attributable
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  to owners of the parent to total assets.
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  It rose from 32.7% at the end of last fiscal year, November 2024,
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  up to 34.6% as of August 2025.
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  Okay, 34.6%. Why does that specific percentage matter for you,
• 9:37
  the listener, thinking about this?
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  Because a higher equity ratio signals better stability. It means the company
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  relies less on debt to fund its assets.
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  Getting closer to 35% gives Tose more cushion, more resilience to weather any
• 9:50
  future market bumps. And more flexibility.
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  Definitely. More capacity to borrow efficiently if they spot a big opportunistic
• 9:57
  acquisition down the line.
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  It's really a sign of improving structural financial health.
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  Another big positive seems to be the cash flow story, specifically cash flow
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  from operating activities.
• 10:07
  Oh, yeah. That's a massive turnaround. Last year, in the same nine-month period,
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  they actually used $1,122 million in cash for operations. It was negative.
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  And this year? For the first nine months of FY 2025, they generated $6,888 million
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  in cash from operations.
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  Positive territory. That's a huge swing, a substantial improvement in liquidity.
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  What drove that inflow? Well, the primary driver was simply the strong profit
• 10:31
  before tax, nearly $19.5 billion we saw earlier.
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  That drops down into cash flow. But there was an offset, wasn't there?
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  Something about inventory. Yes, and this is an important note of caution.
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  While profit drove cash in, that inflow was significantly offset by a big increase in inventories.
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  Inventories went up by $9,379 million. Okay, let's unpack that inventory buildup.
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  Is that just a normal thing for a successful development business,
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  prepping properties for sale?
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  Or could that large number, nearly a 9.4 billion, be a risk?
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  Like, maybe they're struggling to sell things off as fast as they're building or buying them.
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  It's a good question. The source material frames it more as the former,
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  you know, a strong pipeline being prepped for sale, which is pretty standard
• 11:16
  for a developer, especially if they're in an active acquisition phase.
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  But given that softening we specifically noted in the logistics market,
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  any inventory tied up in that sector carries a bit more risk now.
• 11:26
  It's definitely something to keep an eye on. You've got strong profits today,
• 11:29
  yes, but also a significant chunk of capital tied up in future stock that needs to be sold.
• 11:33
  Okay, so inventory is something to monitor. but overall the signals seemed very confident.
• 11:39
  What is José actually saying about the rest of the fiscal year,
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  the full year ending November 30, 2025?
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  Well, that confidence is pretty much cemented by the fact that they've left
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  their full year forecast completely
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  unchanged from their previous announcement. No revisions at all.
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  None. They're firmly sticking to their projections.
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  Revenue of $98,125 million and profit attributable of $14,085 million.
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  It basically says they believe they've already locked in the sales and stability
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  needed to hit these record targets.
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  And they're planning to share that success directly with shareholders,
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  too, through the dividend. Yes, quite substantially.
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  The expected annual dividend for this fiscal year, FY 2025, is pegged at 98.0 per share.
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  That's a sharp increase from 79.0 last year.
• 12:26
  That's a pretty strong signal of confidence in their future cash generation. It absolutely is.
• 12:31
  And looking forward, in terms of growth, they're clearly continuing that strategy
• 12:34
  of expanding their stable stock businesses, the ones that generate recurring
• 12:38
  income. Like hotels? Exactly.
• 12:40
  They confirmed the planned opening of a new hotel, the Tose Hotel Kokoni Kamada, in December 2025.
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  This expands that successful hotel brand pipeline, positioning them to keep
• 12:50
  capturing that growing tourism demand. Okay, makes sense.
• 12:53
  And one final point, a structural move that might affect how you,
• 12:57
  the listener, actually trade the stock.
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  A share split. Right. They're planning a two-for-one share split,
• 13:03
  which will take effect on December 1st, 2025.
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  Now, why do companies do share splits? What's the thinking here?
• 13:10
  Yeah, it's a good question. The company was quite clear in the documentation.
• 13:13
  They stated, the purpose is purely technical, to enhance liquidity,
• 13:16
  make the shares trade more easily, and expand their investor base.
• 13:19
  How does it do that? By reducing the price per share.
• 13:22
  A two-for-one split means if you owned one share worth, say,
• 13:25
  $10,000, you'll now own two shares worth $5,000 each.
• 13:29
  The total value is the same, but the lower price per share makes it more accessible,
• 13:34
  theoretically, to smaller retail investors or certain trading platforms.
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  It's about broadening ownership, not changing the company's fundamental value.
• 13:42
  Got it. So this has been a really interesting dive.
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  We're looking at a company, Tose, executing, I mean, really quite brilliantly
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  within a pretty tricky environment. Strong Q3 results built on a buoyant market,
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  yes, but the key seems to be their strategic maneuvering. That's the takeaway.
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  Maximizing growth where they could, like in development and especially funding
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  consulting, while actively using the revitalization business to manage those
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  really nasty construction cost risks.
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  So as you, our listener, think about projecting their performance into the next
• 14:14
  fiscal year and beyond, what's the main thing to consider? Well,
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  the final thought we'd leave you with is this.
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  Tose's whole strategy seems to hinge on balancing those potentially lumpy opportunistic
• 14:26
  real estate sales against the stability they get from their stock businesses,
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  the rental income, the fund fees, the hotel operations. OK.
• 14:34
  Now, given that the sources specifically mentioned that softening in the big
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  logistics market, remember, rising vacancy, falling rent, you have to ask,
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  how critical will the performance of their new stable assets,
• 14:44
  like that upcoming Tose Hotel Kokoni Kamado be,
• 14:47
  will those be enough to offset any potential future slowdowns in the big ticket sales segments?
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  That underlying structural resilience?